REGEN CAPITAL I, INC. v. UAL CORP. (February 18, 2011)

AT&T Corp. was a creditor in United Air Lines’ bankruptcy, with a $4.9 million claim arising from defaulted telecommunications contracts. AT&T assigned the United claims to ReGen Capital I, a firm that purchases discounted claims against debtors. Under bankruptcy law, United would have to cure any default if it wanted to assume these executory contracts. In United's proposed reorganization plan, it listed the AT&T contracts on in "Assumed Executory Contracts" exhibit. The plan also allowed United to reject an executory contract within 15 days after the parties or the court established the cure amount. The bankruptcy court confirmed the plan. United treated the ReGen claim as a general unsecured claim and paid $626,000. ReGen submitted a cure claim, based on United’s inclusion of the contracts on its exhibit. United objected and also filed its notice of intent to reject the contracts. The bankruptcy court found for United on alternate grounds: that ReGen's rights to the claims did not include a cure right and that United properly rejected the contracts. Judge Darrah (N.D. Ill.) agreed. ReGen appeals.

In their opinion, Judges Kanne, Tinder, and Hamilton affirmed. The Court disagreed with the lower courts’ interpretation of ReGen’s rights under the AT&T assignment. The agreement between AT&T and ReGen assigned AT&T's pre-petition unsecured claims and "any actions, claims, lawsuits or rights of any nature" that arise out of those claims. That definition, the Court concluded, was broad enough to include the unsecured claims and any cure claims connected with them. The Court agreed with the lower courts, however, on their alternate basis for holding in United’s favor. The Court emphasized that its review was limited. When a bankruptcy court interprets a reorganization plan that it earlier approved, it is entitled to full deference. Here, the plan specifically gave United the right to reject an executory contract up to 15 days after the cure amount was established. That 15 day period never even started running. United's inclusion of the contracts on its exhibit and the court's approval of that exhibit as part of its plan amounted only to the court's approval of United's ability to assume the contracts. Neither the listing of the contracts nor the approval of the plan constituted an assumption of the contracts themselves. In fact, the contracts could not be assumed until there was a cure. The bankruptcy court did not abuse its discretion in concluding that United properly rejected the executory contracts.